0 Crop Insurance. Consider a state in which farmers are divided equally into two types: high risk and low risk. The average annual crop loss (and possible insurance claim) is $200 for a low-risk...

0 Crop Insurance. Consider a state in which farmers are divided equally into two types: high risk and low risk. The average annual crop loss (and possible insurance claim) is $200 for a low-risk farmer and $1,200 for a high-risk farmer.

a. If all farmers were to buy insurance, what is the break-even price for the insurance company?

b. Suppose a farmer will purchase insurance only if the price (the annual premium) is no more than 50 percent higher than his or her average crop loss. What is the equilibrium price?